Risk allocation wholly skewed against private sector

Vinayak Chatterjee, Chairman, Feedback Infra feels that the country has failed miserably on regulation, renegotiation, risk allocation and resourcing. He says that a comprehensive policy framework, including independent regulation, is required to make the PPP concept a success.
Was there any lack of clarity within the government on how PPP projects should be conducted?
Yes, because PPP was a learning experience. From Independence, we went with the (Prasanta Chandra) Mahalanobis socialist Planning Commission model. Then we went in for partial liberalisation. Then we went into dismantling the license-permit raj. Then we started PPP. So the economic policy that affects a nation goes through learning curves and cycles. PPP has just completed its first major cycle of 15 years as it started in 1997. So you can say that around 2012, in that period when the UPA government was almost sputtering, in those 15 years we almost learnt the lessons of PPP. Therefore, now with PPP in the pause mode, we are using public expenditure to fill in the gaps. But the desire to revive PPP is there, which is why the government appointed the Kelkar Committee. That is why it announced the 3P India. That is why the government is announcing more PPP projects in a modified format, whether it is hybrid annuity or airport or port projects. We started with good intentions. We´ve understood the mistakes we made as a nation. The time has now come to correct and reset the rectangle and go for the next burst with higher learning and, hopefully, lower failure rate.

The Vijay Kelkar Committee report was released to the public in December last year. Your take on the recommendations made by the panel...
I myself have had long chats with Mr Kelkar.
The point of the Kelkar report is that the government decided that such a report was necessary. It came to the conclusion that the PPP model is required to be reset. So that is positive number one. Positive number two is that the government has not said that it will not implement the committee´s recommendations.
Our frustration possibly stems from the fact that we wanted an immediate implementation. What I understand is that now a large portion of the recommendations pertaining to renegotiation and dispute resolution is actually being picked up from the report and packaged into the Public Utility Dispute Resolution Bill (2016) that is going to be introduced in Parliament. That addresses to some extent renegotiation of PPP projects. I understand that 3P India is still in the works. The expectation is that ideas and suggestions from the report may be implemented in different business spheres.

In the 2014 Union Budget, the Finance Minister had proposed setting up of 3P India with a corpus of Rs.500 crore to provide support to mainstreaming PPP projects. Although the institution has so far remained only on paper, do you think the proposition is relevant to India?
The proposition is extremely relevant. All these concepts that we talk about need an intellectual construct. When we say renegotiation, a renegotiation institution has to be set up. When we say risk allocation, someone has to decide the right method for risk allocation by sector. Someone has to decide the right PPP model for a particular sector or job. Someone has to decide to create long-term markets, whether it is REIT (real estate investment trust) or bonds. One has to harmonise across ministries and sectors as well as Centre and states, and pick up the best learnings from the international arena. To do all of this, you need a body that is sharp on intellect and delivery. And, therefore, we from private industry resoundingly welcomed the idea the Finance Minister announced in 2014. We think such institutions are necessary as they will serve as the intellectual engine behind revitalising the PPP wealth.

The Kelkar Committee has also recommended establishing of independent regulators for monitoring PPP projects in various sectors and stressed an amendment to the Prevention of Corruption Act to clarify the difference between cases of graft and procedural errors. Don´t you think this will only complicate things further?
No, this will only simplify matters. After all, why have one civil servant sign on a file where thousands of crores of dispensation will be required to start a PPP project or provide relief? People are scared to sign because of the five ´Cs´ (Central Vigilance Commission (CVC), Central Information Commission (CIC), Central Bureau of Investigation (CBI), Comptroller and Auditor General (CAG) and courts). So why not create mechanisms where good people are put in the job and committees like these take decisions and sign off? Also put into legislation the fact that when such committees have recorded a decision in good faith, charges of corruption or crony capitalism shouldn´t be brought against them. This is a good idea and I think society is ready to see it implemented.

Will long-term loans with flexible structuring to absorb potential adverse contingencies, or the 5/25 structure, help revitalise the world´s largest PPP market?
Most of these interventions have to do with commercial banks. The 5/25 concept is basically a version of take-out financing that you hold a piece of paper for five years of Bank A and then of Bank B. That provides some interim relief. But if the asset is good, the bank does not want to part with it. If the asset is bad, no other bank wants it. At the same time, a developer´s problem is that 5/25 does not allow him to make a loan application for 20 years. If I have to match the economic cycle of a concession agreement of 20 years, then I need to sit on top of it at least for at least a 15- to 20-year loan cycle. The current banking regulations do not allow you to make an application to the Indian banks for a loan of more than seven years. As an ameliorating thing 5/25 can mitigate some pain, but the real challenge is to create favourable conditions for long-term financial instruments such as insurance, provident funds, pension funds and vibrant bond markets. Bonds can exist for many years. Several years ago Reliance raised 100-year Yankee bonds. Why can´t we have a 20-year bond market? Stuff like this needs to be done. What is presently happening in commercial banking can at best be described as tinkering.